Inside Asian Gaming

inside asian gaming MAY 2015 8 EDITORIAL Inside Asian Gaming is an official media partner of: www.gamingstandards.com Inside Asian Gaming is published by Must Read Publications Ltd 5A FIT Center Avenida Comercial de Macau Macau Tel: (853) 8294 6755 For subscription enquiries, please email subs@asgam.com For advertising enquiries, please email ads@asgam.com or call: (853) 6680 9419 www.asgam.com ISSN 2070-7681 Publisher Kareem Jalal Director João Costeira Varela Editor At Large Muhammad Cohen Contributors Paul Doocey, John Grochowski, James Hodl, Matt Pollins, I. Nelson Rose Graphic Designer Rui Gomes Administrative Assistant Latte Iao Photography Ike, Gary Wong, James Leong, Wong Kei Cheong Kareem Jalal We crave your feedback. Please email your comments to kareem@asgam.com Gazing Into the Abyss And when you gaze long into an abyss, the abyss also gazes into you. — Friedrich Nietzsche A s the stocks of Macau’s six casino operators—all still traded on the Hong Kong Stock Exchange—languish near their 52-week lows, investors are wondering when the sector will hit bottom. Las Vegas Sands Corp Chairman and CEO Sheldon Adelson commented on the uncertain outlook for Macau during an earnings call last month: “We are sailing in uncharted waters, and I hope we don’t sink like that boat off in the Mediterranean.” Wynn Resorts’ Steve Wynn agreed during his own earnings call that “there’s no question that uncertainty is the plaguing word of the day in Macau.” There’s a perception that local authorities are adding to the uncertainty by allowing the decision on allocation of gaming tables for soon-to-open Cotai resorts—including Phase 2 of Galaxy Macau, scheduled for a 27th May unveiling—to go down to the wire, not to mention floating the suggestion of capping the number of visitors allowed into the tiny city, which is straining under the load of well over 2 million arrivals a month. “Hopefully, our government in Macau will calm that down and put some certainty back into the picture,” said Mr Wynn. In reality, table allocations and the mooted limit on visitor numbers are mere distractions from the well-documented causes of Macau’s current malaise, including Beijing’s ongoing corruption crackdown, the weakening China economy and tightening of illicit fund flows out of the country, along with Macau’s total smoking ban on main-floor gaming areas since October. Another important factor is the evolving tastes of China’s middle class, and particularly the sophisticated younger cohort within it, who are increasingly drawn to more exotic and experience-rich holiday destinations, and, it seems, like their counterparts in America, are not as interested in gambling as the generation that preceded them. Macau’s table cap—originally intended as a means to rein in the overheating gaming market— has become somewhat irrelevant following the precipitous drop in demand that has left hundreds of gaming tables idle around the city. Shuffling tables out of existing properties into new ones is looking increasingly like the best way for operators to manage capacity. The latest consensus view is that Galaxy Macau Phase 2 will be granted 150 new-to-market tables, allowing it to open with approximately 200 total, though the company had said previously the property has capacity for 500 tables and 1,000 EGMs. Clearly one result is a major opportunity for EGM suppliers to fill the gaps where tables should have been. As for the suggestion of capping visitors, “The chances of that happening are [the same as] I wake up tomorrow morning and all my hair will be grown back,” said Mr Adelson. He added: “I have been told that it is not a decision by the government. It’s only a suggestion by one of the ministers with very good intentions, but it hadn’t been thought out.” After all, a visitor cap would seriously hinder the hoped-for diversification of the local economy. Mr Adelson offered an example of how it would affect the vaunted MICE—meetings, incentives, conferences and exhibitions—industry: “I would never, as an organizer, book an event in Macau if I knew there was a possibility that the guy who came through the [border] before me was the last guy [who would be allowed in].” For bargain hunters, the big question is: When is the appropriate time to go bottom-fishing for Macau casino stocks? It’s still too early to say when revenue might rebound, but the bearish tide could be turning. Renowned Swiss investor Marc Faber, one of the world’s most noted market contrarians, whose negative views earned him the moniker “Dr Doom,” is uncharacteristically optimistic about Macau’s prospects, recently saying on his blog: “In the next six months, I would accumulate some Macau-related gambling shares.” The landscape for Macau’s operators has been utterly transformed. Gone are the days when players crowded three deep around tables within hastily converted office buildings as gaming capacity struggled to keep pace with demand. The real growth now will have to come from the city’s non-gaming offerings. It’s what Beijing, the local government and China’s new generation of consumers is looking for. And it’s fortunately what the upcoming wave of Cotai resorts promises to deliver. Dr Doom’s recent bullish call on Macau has merit. If Chinese demand could propel Macau’s gaming revenue to many times that of the Las Vegas Strip, surely it could do the same for its hotel, entertainment, MICE and F&B revenues as well. The question the operators now face as they gaze into the abyss is whether they have the mettle to compete on a world stage for Chinese consumers’ non- gaming dollars.